China’s Economic Rebound Stutters

The March reading of China’s purchasing managers’ index fell to a neutral level from a month earlier, suggesting the rebound following the Covid restrictions may not be as smooth and linear as hoped.

The Caixin reading of the country’s PMI stood at around 50 last month, down from 51.6 in February.

The official PMI reading, released at the end of last week, also marked a decline, from 52.6 in February to 51.9 in March.

“In a nutshell, the economy saw a marginal slowdown of recovery in March as the expansion in both manufacturing supply and demand significantly weakened from the previous month,” a Caixin Insight Group economist told the Wall Street Journal.

Data about China’s economic activity is followed closely by oil market players because of the close and direct link between the country’s growth and its oil demand.

"The relatively modest and short-lived pick-up in the manufacturing PMIs in the first quarter suggests that the industrial sector has only received a limited boost from reopening," Capital Economics said in a note, as quoted by Reuters.

"This is partly due to a weaker global backdrop, but it is also consistent with our view that most of the reopening recovery will come from the services sector which was hardest hit by the zero-COVID policy," the firm added.

The news from China comes amid a sharp rise in oil prices following OPEC+’s unexpected announcement of another production cut of over 1 million bpd. Following the announcement, oil prices shot up, with Brent topping $83 at the time of writing and West Texas Intermediate at more than $79 per barrel.

The slowdown in China’s recovery will likely act as a counterweight to oil prices and slow down their advance or maybe even reverse the rebound later in the day given the country’s outsized role in global oil demand.

By Charles Kennedy for Oilprice.com

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